‘Contract Farming’ , organised by the peripheral state and multinational agribusiness and financed by the World Bank and international lending institutions, is spreading swiftly in the Third World. Peasant household production is being transformed by this process. This transformation and its trajectory require appropriate theoretical analysis and close empirical examination. Such analysis is obscured rather than illuminated by those radical critics from the dependency school who insist that capitalist development in agriculture can only immiserate the rural poor, who regard the state as a tool of international capital and its dependent (comprador) bourgeoisie and who harbour romantic visions of the self-sufficient peasantry. This article seeks to re-examine the position of the dependency school, with specific reference to the peasantry and agri-business, to develop a mode of analysis in order to comprehend the development of contract-farming in terms of recent theoretical work on the internationalisation of capital, and to present some findings on the development of contract farming in sugar and tea production in Western Kenya.